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By David McClard

recent article in the New York Times financial section described a horror story involving an insurer whose protracted financial meltdown caused the loss of $4.5 billion to its policyholders, including over a million dollars for a little girl with a hospital visit-caused brain injury.  The author made the assurance that such financial fiascos are rare with insurers because of the strict guidance and watchfulness of state insurance regulators. (But this assurance contains no consideration of the limited ability of insureds to collect more than remedial sums in ERISA-governed plans, thanks to O’Connor’s dicta in Pilot Life v. Dedeaux.)

The economic situation is now roundly considered precarious in almost every sector, and life and health  insurance companies do not seem to be the exception. For anyone who is convinced that their insurer is on the brink of a collapse, they are forced into the unenviable position of having to chose whether or not to pull out of a policy prematurely. It’s usually not something an insured ever wants to do (because of tax issues, penalties, paperwork, et al), but if it has to be done, there are some tips on making the next step a safer one:

1)When choosing a new insurer, consult with more than one agency rating. Each have their own criteria for rating insurance companies, so results may vary. The major raters A.M. Best, Fitch Ratings, Moody’s and Standard & Poor’s. 2) When shopping among the top-rated companies, be wary of terms which seem too good to be true, and exotic riders to policies. 3) Be extremely careful of gaps in coverage when switching policies. 4) Spread coverage over two (or three!) policies to hedge against an insurer financially tanking.

This advice is understandably disheartening, since it implies that the life and health insurance industry is now more than ever full of dangerous pitfalls.